NEW YORK (Reuters) - Shares of CIT Group Inc (CIT.N) fell 37 percent on Wednesday on concerns that the commercial lender would turn itself over to bondholders as it tries to avert bankruptcy.
CIT shares fell 81 cents to $1.39 in afternoon trading.
CIT was preparing an exchange offer that would eliminate up to 40 percent of its more than $30 billion in outstanding debt, two sources familiar with the situation told Reuters late on Tuesday, requesting anonymity because they were not authorized to make public comments about the deal.
That would mean exchanging 60 cents on the dollar for debt, said Brian Charles, debt analyst at fixed income broker-dealer R.W. Pressprich & Co.
“That seems severe,” Charles said, adding that an exchange of 70 cents to 80 cents on the dollar may be more attractive to bondholders. “I am not sure bondholders will sign on to that. I see someone making the argument that the recovery in bankruptcy is greater than 60 cents.”
“In almost every scenario the current stock is going to be pressured,” Charles said.
Some CIT bondholders have expressed support for a new debt exchange plan, but a majority are not yet on board, one of the sources said on Tuesday.
The plan would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured company, the second source said on Tuesday.
If enough bondholders did not agree to the plan, the company could seek to restructure in bankruptcy court, the source said.
But the situation was fluid and nothing had been finalized until late on Tuesday, and the board had not signed off on any plan, the source said.
Although CIT received $2.3 billion in December under the Troubled Asset Relief Program (TARP), federal regulators this year declined further requests by CIT for funds.
In July, CIT bought some time to restructure with the help of an emergency loan from a group of bondholders.
Bond giant PIMCO, Centerbridge Partners LP, Oaktree Capital Management, Baupost Group, Capital Research & Management Co and Silver Point Capital were part of a group that provided a $3 billion loan to the lender this summer.
Under the terms of the $3 billion July loan, CIT must come up with a restructuring plan agreeable to lenders by October 1. That plan will likely include debt exchange offers, the company said in a regulatory filing in August.
The bondholder steering committee has been actively involved in developing a new plan for the company, and regulators have also been briefed frequently on plan development, the second source said on Tuesday.
“I could also see a scenario in which the company completes a debt exchange and essentially sells off its assets over time,” R.W. Pressprich’s Charles said. “The long-term outlook for the company, I guess that is still cloudy because I am not sure to what extent would they be able to shift everything over to their bank subsidiary.”
Reporting by Paritosh Bansal, Walden Siew and Dan Wilchins; Editing by John Wallace